Australia is a major nation to watch when it comes to curbing climate change. The country made an international commitment to reduce its GHG emissions by 5 to 25 percent from 2000 levels by 2020. How Australia achieves these reductions can provide lessons on how other countries around the world can pursue their own climate change mitigation plans.

WRI’s Open Climate Network and Australia’s The Climate Institute (TCI)recently analyzed Australia’s climate change plan, which includes a mix of policies to reduce emissions (check out the working paper here). We found that three initiatives stand out in terms of their potential to significantly reduce GHG emissions: a carbon pricing mechanism, a Renewable Energy Target (RET), and the Carbon Farming Initiative (CFI).

1) The Carbon Pricing Mechanism

The carbon pricing mechanism is the primary instrument for meeting Australia’s emissions reduction goals. Established by the federal Clean Energy Act 2011, the carbon price is applied to roughly 60 percent of the country’s emissions. Set as a fixed fee per metric ton for the first few years of operation (around $A 23-25), the mechanism will shortly transform into a cap-and-trade system linked to the European Union emissions trading scheme (ETS) and, to a lesser extent, the Kyoto Clean Development Mechanism. The government recently advanced the date of this transition from 2015 to 2014; experts do not expect this to have a material impact on Australia’s ability to achieve its target. Government revenue from selling carbon permits will be invested in clean energy and low-carbon technologies. Revenue from the carbon pricing mechanism will also be provided as compensation to households for possible increases in the cost of goods and services as a result of the carbon price.

It is widely expected that the price on carbon permits in Australia will be influenced by permit prices in the larger European market, and hence, by policy developments in the EU rather than in Australia. This is likely to affect the degree to which emissions reductions are achieved in Australia. For example, low prices in the EU trading scheme could encourage polluters in Australia to purchase EU permits instead of reducing their emissions domestically. On the other hand, if the Australian government were to aim higher than the minimum 5 percent target, it can do this without affecting the permit price. Given that international permit prices are projected to remain fairly low for the rest of the decade, Australia could achieve the top of its current target range for very little extra cost.

2) The Renewable Energy Target

The federally mandated Renewable Energy Target is the principal driver of investment in renewable energy in Australia. The Large-Scale Renewable Energy Target (LRET) requires utilities to generate 41,000 gigawatt hours (GWh) from renewable sources by 2020. The Small-Scale Renewable Energy Scheme (SRES) targets households and is expected to account for at least 4,000 GWh by 2020. The RET has mobilized $A 18 billion in renewable energy investments since 2001. It contributed to an additional 3.5 percent of renewable electricity generation in 2011, and projections show that the RET could help renewables gain more than 20 percent of the market share. Government estimates indicate that the RET is likely to reduce annual emissions by nearly 30 Mt CO₂e, which would be equivalent to 6 percent of net emissions in 2020 under the 5 percent target and 7 percent under the 25 percent target.

3) Carbon Farming Initiative

A voluntary carbon offset scheme, known as the Carbon Farming Initiative (CFI), provides farmers and land managers the opportunity to earn carbon credits through carbon sequestration projects. These credits are eligible for use within the Australian ETS. Although only modest reductions are expected from the CFI in the short- to medium-term as eligible methodologies are developed and tested, over the long-term, the initiative is expected to increase the adoption of low-emissions technologies in the land use sector and produce significant GHG reductions. Several activities and technologies have already been implemented, such as reforestation and the destruction of methane generated from manure. Other major policies related to agriculture and forestry include state-based land-clearing laws, which have the potential to advance or undermine emission reductions, depending on whether restrictions on land clearing are enforced or relaxed.

Policy Recommendations for Australia

Australia is expected to reduce emissions within its target range by 2020 if the country’s Clean Energy Act 2011 and related legislation remain intact. But the country has the opportunity to go even further.

For example, to improve its domestic emissions-reduction efforts through the carbon pricing mechanism, Australia could further restrict the purchase of international emission permits. In terms of renewable energy, the country must ensure that the RET is enforced in the face of recent lobbying efforts to decrease the target. Countries that take a comprehensive and sustained approach to renewables policies have enjoyed greater benefits from the clean energy economy. Leaders should also focus greater attention on emissions reductions through energy efficiency improvements via such tools as the fuel economy, emission standards for passenger vehicles, and a nationally consistent energy efficiency obligation for electricity and gas suppliers. Finally, recent relaxation of land-clearing laws in the state of Queensland poses a threat to Australia’s domestic abatement. State and federal governments should make every effort to prevent land clearing from undermining the country’s GHG-reduction objectives.

Watching—and Learning—from Australia

Australia is part of a growing number of key regions and countries acting to reduce their GHG emissions—including the EU, United States, and China. As Australia gears up for its federal election later this year, the country has the opportunity to set a powerful example for other nations by moving forward with ambitious mitigation strategies and making efforts to strengthen them. As Australia has learned from other countries’ experiences in setting up market mechanisms for carbon reduction, the international community should continue to keep an eye on the Australian experience, track its performance, and build on its successes.

LEARN MORE: Find out more about greenhouse gas mitigation in Australia by downloading the Open Climate Network’s latest working paper. The paper is part of a series that examines the climate mitigation policy landscape within developed and developing countries—including the United States, United Kingdom, and European Union. Working papers on China, Brazil, and India are forthcoming. Learn more about the Open Climate Network’s analysis.